Hundreds of North Bay apartments involved in bankruptcy reorganization
[caption id="attachment_19684" align="alignright" width="288" caption="George Mendoza purchased Mountainview Villas in southeast Santa Rosa in mid-2002 for $12 million and is expecting to sell it in April for $12.5 million. (Jeff Quackenbush photo)"][/caption]
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PETALUMA – Genora “George” Mendoza, an investor in more than $100 million in mostly North Bay and Bay Area residential income properties, is emerging from U.S. Bankruptcy Court protection with a confirmed reorganization plan to pay off $82.2 million in real estate loans, property taxes and other debts over three to five years.
The plan, confirmed in a Santa Rosa courtroom on Feb. 22, culminates more than two years of efforts by Mr. Mendoza's Petaluma-based Mendoza Investments to stabilize a portfolio that included 16 multifamily properties – most in the North Bay – with 646 units; three office buildings in Memphis, San Francisco and Petaluma; 15 single-family rental homes in Florida and South San Francisco; and Mr. Mendoza's current and former homes in Penngrove and Novato, respectively, valued at $3.5 million each, according to court documents.
Judge Alan Jaroslovsky is expected to issue an order confirming the plan shortly as some remaining details are worked out, according to Mr. Mendoza's Sonoma-based attorney, John MacConaghy.
Key among the details are repayment of $45 million in first deeds of trust to Chase, which picked up the loans of defunct Washington Mutual, and more than $8 million in mostly junior notes to First Republic Bank. That should allow the rest of the properties to be "unimpaired," or to repay the loans on the modified terms.
"We're in mop-up mode now," he said. "All we need is for the real estate market to stabilize."
That "mop up" includes the close of escrow on a second property from the portfolio and court hearings in the second half of April on claims from a first-deed lender on 60 apartments in Rohnert Park, the first note holder on Mr. Mendoza's former home in Novato and a related case brought by an individual secondary investor, who lent $5.1 million in eight notes on seven properties.
A real estate investor for four decades, Mr. Mendoza's business model has been buying properties with poor management and maintenance, acquiring higher-interest secondary loans to make debt payments until better managers and renovations would attract tenants and increase income enough to bring positive cash flow and then sell them for a profit.
To keep that model going, he would have to sell a certain number of properties per year to fund future and recent acquisitions, but the "recent, dramatic freezing of the income real estate and credit markets" prompted Mendoza Investments to file for reorganization on June 3, according to court filings.
Under the plan, "a few" of the properties would go back to some of the 10 senior and junior lenders on the remaining properties. Yet most of the notes would be modified to include principal, accrued interest, attorney's fees and other costs. Payments would be interest-only. The first deeds of trust would be due in three years and paid based on the lesser of 4.5 percent or the original note annual interest rate. Junior lenders would be paid net cash flow on the properties or about 6 percent, whichever is less.